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Comment: Tesco and insurers do the right thing on dividends while L&G and the banks are sinners

Jeremy Selwyn
Jeremy Selwyn

Today’s instalment of the corona crisis presents a tale of two dividends.

Insurance companies united to scrap theirs ; Tesco decided to pay out.

Both have done the right thing.

How so?

Because, as rehearsed here on Monday , Tesco is awash with cash, thanks in part to its unwarranted windfall from the covid business rates holiday.

It has had a good war, pulling out all the stops to feed the nation, and is not likely to cop too much Tim Martin-style loathing in the court of public opinion for making good money and rewarding shareholders.

Insurers, too, can amply afford their divis, but are facing a monstering in the media for refusing to pay stricken businesses’ Covid claims. Fat divis do not win hearts and minds.

They have also been politely recommended by the Bank of England's Prudential Regulation Authority not to.

You'd have thought it would be a no-brainer, but when the regulator tried the same nudge treatment on the banks, four out of five refused. They only complied after it ordered them to.

The result: insurers come out looking good, banks – as ever - bad.

Some lenders are now briefing that they had to get the PRA to force them not to pay for fear of being sued by their shareholders.

Insurers have shown that to be balderdash. Directors’ fiduciary duties are to act “in the best interests of the company”. Complying with your home regulator’s wishes and avoiding a public relations disaster clearly ticks that box. As long as your boardroom minutes show the directors considered the matter properly, no judge would find otherwise.

Not all insurance companies have shown such wisdom.

Legal & General came out quickly after the PRA’s recommendation to declare it was going to pay its dividend anyway.

For a company usually so attuned to public relations, this seemed tin-eared at the time, and after today, positively stone deaf. Particularly as its chairman John Kingman was the top man at the Treasury during the financial crisis.

Not only does he know first hand how banks' irritating behaviour towards regulators and politicians backfired with repeated punitive action in the following decade, but he is still pally with his Treasury protégée Sam Woods, now running the PRA.

Arguably, life insurers are less in the covid-claims firing line than general insurers, but you could equally say their financial strength will be more weakened by a slowing economy and the impact of sickly bond market returns on their investment performance.

L&G usually gets things right. On this occasion, a U-turn is in order.